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A corporation is a legal entity independent from its owners, the shareholders. It can sue and be sued, and its shareholders are shielded from liability (except possibly in cases of intentional wrongdoing, fraud, etc. – for example: WorldCom, Enron). Corporate profits are taxed, and corporations live on perpetually unless dissolved. Corporations are suited to raising large amounts of capital through many investors.

The first question you should ask yourself when considering incorporation is, “Why am I forming a corporation and not an LLC?” If you cannot articulate an answer, you should educate yourself about LLCs, which have many of the benefits of corporations, without the drawbacks. For example, LLCs are easier to maintain than corporations. If you do not plan to seek the investment of numerous individuals, you should consider an LLC.

Corporation Highlights

If you opt for a corporation, US Legal has developed a comprehensive array of legal forms and information related to corporate formation. Our forms are developed and maintained by attorneys, to ensure maximum reliability and compliance with current state statutes. With US Legal, you can be confident that the corporate forms and information forms for your state will reflect your state’s unique laws, rather than containing the generic language relied on by free-forms sites and fly-by-night operations.


A corporation is an artificial person that is created by governmental action. The corporation exists in the eyes of the law as a person, separate and distinct from the persons who own the corporation (stockholders). This means that the property of the corporation is not owned by the stockholders, but by the corporation. Debts of the corporation are debts of this artificial person, and not of the persons running the corporation or owning shares of stock in it. The corporation can sue and be sued in its own name. The shareholders cannot normally be sued as to corporate liabilities.

A corporation is formed by obtaining approval of a Certificate of Incorporation, Articles of Incorporation, or a Charter from the State of incorporation. The Secretary of State is usually the official who approves or disapproves this certificate.

A corporation is called a domestic corporation with respect to the State under whose law it has been incorporated. Any other corporation going into that State is called a foreign corporation. For example, a corporation holding a Texas Charter is a domestic corporation in Texas, but a foreign corporation in all other States. A foreign corporation must qualify to do business in a foreign State.

A corporation whose shares are held by a single shareholder or a closely-knit group of shareholders (such as a family) is known as a close corporation. The shares of stock are not traded publicly. Many of these types of corporations are small firms that in the past would have been operated as a sole proprietorship or partnership, but have been incorporated in order to obtain the advantages of limited liability or a tax benefit or both.

A corporation may be organized for the business of conducting a profession. These are known as <a href=””professional corporations. Doctors, attorneys, engineers, and CPAs are the types of professionals who may form a professional corporation. Usually there is a designation P.A. or P.C. after the corporate name in order to show that this is a professional association or professional corporation.

A nonprofit corporation is one that is organized for charitable or benevolent purposes. These corporations include certain hospitals, universities, churches, and other religious organizations. A nonprofit entity does not have to be a nonprofit corporation, however. Nonprofit corporations do not have shareholders, but have members or a perpetual board of directors or board of trustees.

A Subchapter S corporation is a corporation in which the shareholders elect to be treated as partners for income tax purposes. Shareholders still have limited liability protection of a corporation, but income is treated like partnership income. Subchapter S refers to a particular subdivision of the Internal Revenue Code. The number of shareholders is limited to 75 shareholders and neither corporations nor partnerships can be shareholders in a Subchapter S corporation. Also, shareholders must be U.S. citizens or resident aliens.

Most States have a general corporation code that lists certain requirements, and anyone who satisfies these requirements and files the necessary papers with the government may automatically become a corporation. In 1950, the American Bar Association published a Model Business Corporation Act (MBCA) to assist State Legislatures in modernizing State corporation laws. In 1984, a revision of this Model Act was published (RMBCA). States have adopted various versions of the MBCA or the RMBCA with only slight variations.

Bylaws are the rules and regulations of a corporation which govern its internal affairs. They are adopted by the shareholders, though in some States they may be adopted by the directors of the corporation. Of course the bylaws cannot conflict with the general corporate statutes of a State or the bylaws will be void.

The shareholders of the corporation have a financial investment in the corporation, i.e. they paid for stock which the corporation in turn uses for capital to run its business. The control of the shareholders over the corporation is indirect. Ordinarily, once a year, the shareholders elect directors, and by this means they can control the corporation. At other times the shareholders have no power or right to control the corporate activity as long as it is conducted lawfully. The board of directors manages the corporation and make business decisions. They in turn choose the officers (President, Vice President, Secretary, and Treasurer), whose responsibility it is to run the day-to-day operations of the corporation.

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